Monday, October 31, 2005

We may have Harriet Miers to thank for the Bernanke era. Only three weeks ago, the White House said that it was "broadening its search" for a new Fed Chairman, looking for someone in agreement with the administration's economic policies, and someone with whom the president would have "personal rapport." Then, suddenly, we got one of the four mainstream guys.

The bond market gave its highest praise: it did nothing – although the only nasty line about Bernanke came out of the bond market (of course). "Greenspan was a maestro; this guy is a music teacher." Stocks soared 160 Dow points, indicating relief of fear of a Bush crony, but temporarily forgetting that any non-crony is going to whack the economy.

Bernanke's first words as nominee were to emphasize the need for continuity, exactly the right thing to have said. Too bad he won't be able to deliver.

Sunday, October 30, 2005

I had a Friday morning appointment in Rogers Park for a condominium on Lake Michigan.

Rogers Park or East Rogers Park is the northernmost neighborhood of Chicago, bordering the City of Evanston and Howard Street to the north, Ridge Boulevard to the west, Lake Michigan to the east, and Devon Avenue to the south.

Rogers Park is the location of the lakeshore campus of Loyola University Chicago and its famous Madonna Della Strada, chapel church of Chicago's Jesuit community. The predominant homes in this neighborhood are vintage condominiums. There are a few large single family homes including Frank Lloyd Wright's Emil Bach House. For the neighborhood profile go to Citywide Services.

Thursday, October 20, 2005

A coulda-been-worse inflation report Friday gave us a morning-only breather, rates rising again now, as they will continue to do.

Bonds and mortgages on Wednesday broke through crucial levels: the 10-year T-note through 4.42 percent to 4.49 percent (higher Friday), lowest-fee mortgages through 6 percent to 6.125 percent (a move which Freddie Mac's survey won't "discover" until later this week).The overall September Consumer Price Index rose 1.2 percent, the largest single-month gain in 14 years, now a 4.7 percent year-over-year increase. However, the "core" rate, excluding volatile food and energy prices, rose only .1 percent – just 2 percent YOY, down from 2.4 percent YOY in July.

Some have misunderstood the Fed, seeing it in a jawbone offensive against inflation, but not intending to raise its rate much farther because core inflation is under some control. Many others have mistakenly assumed that high energy prices would do the Fed's work, slowing the economy. Give that up: September retail sales rose 1.1 percent excluding the collapse in SUV sales, and despite Katrina/Rita. There is some word of accumulating inventory of homes for sale, but no decline in aggregate sales, nor a decline in purchase mortgage applications.

Bonds and mortgages have not adjusted to the very great likelihood that the Fed will go .25 percent at each of the next three months' meetings, putting Fed funds at 4.5 percent by Feb. 1. At that point, a lot of heavy lifting will have been done for the new Chairman (hope – pray – for Ben Bernanke or Donald Kohn), but any new Chairman faces market doubt about toughness, and the only way to demonstrate fortitude is to raise rates. Any flinch by the new Chairman will be interpreted as timidity, or execution of election-year instructions from the White House.

Monday, October 17, 2005

Money Magazine reports a survey that only 14% of households can buy typical house with traditional down payment.

Home prices across California have more than doubled since late 2001, increasing pressure on home buyers, who needed a minimum household income of $133,800 to buy a home at the August median price of $568,890, the California Association of Realtors said in its report.

That meant that only 14 percent of households could afford the typical home, down from 18 percent a year earlier, and the lowest level since records began in 1989, the report said.

Sunday, October 16, 2005

Big week. Bottom line: the Fed has an inflation problem, and markets are beginning to adjust – beginning – to how high and tight the Fed may have to pitch. Mortgage rates have held 6 percent, but barely, and probably temporarily.

Bonds ignored the terror alert in New York, ignored the bird flu flap, but did react to economic data, for the most part a lot of pointless lurching at post-Katrina garble. Last Monday, the purchasing managers' manufacturing index for September soared to 59.4 from 52 in August, and the bond market fell apart in an instant. Bonds revived the next morning on news that the manager's service-sector index had crashed to 53.3 post-Katrina from 65 in August.

The durable and damaging residual from the purchasing managers' whipsaw: the prices-paid component of the surveys went off-chart in September: roughly 80 percent of purchasing managers paid higher prices for everything, not just energy products.

Friday morning's coulda-been-worse September job report blew up bonds until traders realized the data didn't include all the Katrina job losses. However, strong revisions in July and August jobs confirmed that the pre-Katrina economy was much stronger than thought, largely unharmed by energy prices and the Fed.

To understand inflation, make friends with somebody old. No one under 45 has a business memory of an energy-driven inflation episode. The central error that kids are making today is to believe that rising prices will slow the economy. The lesson of the '70s: early-stage inflation stimulates the economy. Widely rising prices make the economy run hot – until the Fed removes the money necessary to pay them.

The Fed probably has a long way to go from today's 3.75 percent to pre-empt inflation; on the low side of proper estimates, 4.5 percent by Fed Chairman Alan Greenspan's last meeting on Jan. 31. The crucial 2s-to-10s Treasury spread is still within .2 percent, indicating that the market expects/hopes that the Fed will be tough enough, soon enough.

Tuesday, October 11, 2005

Savvy homeowners and realty agents can use the Internet to research home values within a specific area. As I recently discovered, computerized appraisals are becoming more and more accurate. But there are still a few basic rules to assure an accurate appraisal:

1. GET THE PROPERTY INTO TIP-TOP CONDITION. If you need a top-dollar appraisal of a house or condo, whether you are a buyer, seller or refinancing homeowner like me, the first step is to get it into its best "model home" condition. Experienced realty agents can provide excellent advice on how to do this, such as by cleaning, repairing and fixing up.

2. ALWAYS ACCOMPANY THE APPRAISER. Either the property owner or the realty agent involved in the property sale should always accompany the appraiser to answer any questions about the home's benefits and features.

As I was prepared to do when my home was recently appraised, it helps to be prepared with a list of nearby recent comparable home sales prices and a list of the home's features.

It is not unusual for a busy appraiser to inspect three or four homes per day and, after a while, even with the help of digital photos, those homes tend to blur in the appraiser's mind so any information the appraiser has when writing the appraisal can help.

3. BE SURE THE LENDER WILL PROMPTLY PROVIDE A COPY OF THE APPRAISAL. Although the home buyer or owner often pays for the appraisal, technically the appraisal belongs to the mortgage lender who ordered the appraisal. Borrowers should be certain the lender agrees to promptly supply a copy of that appraisal so the borrower can review it and correct any mistakes the appraiser might have made. My lender (Wells Fargo) even sent me a FedEx overnight copy of the appraisal.

If you feel the appraiser has made a serious error and he or she refuses to correct it, ask the mortgage lender for a prompt "review appraisal" by another appraiser to be paid by the lender. Should you discover a violation of appraisal standards, a complaint to the state appraisal license agency will usually produce an investigation and even discipline, if warranted.

Sunday, October 09, 2005

In the past, I've written many times that real estate appraisal is an art rather than an exact science. But, thanks to computerized appraisals, I'm beginning to wonder.

After my refinanced mortgage was approved, subject to the appraisal, my lender's loan agent (who was located in Las Vegas) asked if I knew of any good local appraisers. Even after phoning some of my Realtor friends who sell homes in my town, there was no consensus of who is the best appraiser.

So the loan agent phoned a few nearby bankers and hired a highly recommended appraiser from a nearby community.

When she arrived at my house in her sports car, with her dog in the back seat, I wasn't sure what to think. Although my house is "average" for the area, the appraiser was neither critical nor praising. But she was very professional and extremely competent.

I was armed with some recent "comps" (sales prices of similar nearby homes) to hand to the appraiser, along with a list of my home's features. But when I mentioned what I thought my house is worth, she replied, "You might be a bit on the low side."

That's when I decided to keep that information to myself and see how the appraisal turned out. Two days later, the loan agent phoned from Las Vegas to tell me the appraised value. It was about $100,000 higher than I estimated.

When I received a copy of the appraisal from the lender, it turned out the appraiser knew of several very recent comparable home sales prices within a block or two of which I was not aware. I'm sure glad I kept my mouth shut.